The future looks bright after salmon industry ends 2013 on a high

2013 was a landmark year for the salmon industry, particularly in Europe. Minimal production growth and strong demand saw prices, export revenues and profits reach record highs, while the Norwegian company Marine Harvest became the world’s first aquaculture company to be listed on the New York Stock Exchange. Chile’s performance also improved in terms of export volumes and prices, but high production costs and biological problems continued to negatively impact the profitability of Chilean companies.

In the long-run, physical and regulatory limits on supply growth coupled with a booming demand from emerging markets across the globe should lead to high salmon prices continuing for at least the next two years, while the steady process of consolidation and vertical integration is expected to result in increased efficiency throughout the supply chain. This transformation is especially important for processors, whose exposure to less flexible supply contracts meant they were amongst those hit hardest by rapid increases in raw material costs.

Prices 

After the expected post-summer drop in prices following increased harvest volumes, export prices for Norwegian salmon rebounded strongly, with larger sizes of fresh whole Atlantics breaking the NOK 50 per kg mark in December. In early 2014, as greater volumes hit the markets, this trend reversed before stabilizing in early March as volumes levelled out. For Chilean exporters, initially low prices in early  2013 climbed steadily throughout the year due to strengthening demand and an improving exchange rate situation. Prices for US-destined Atlantic fillets and Japan-destined coho remained approximately stable in early 2014, but prices on the Brazilian market have fallen in recent weeks.

Norway

Salmon

Norwegian salmon producers undoubtedly saw the best of 2013, posting all-time high export revenues and record prices on the back of flat production growth.  According to the Norwegian Seafood Council (NSC), the value of all Norwegian salmon exports in 2013 came to NOK 39.8 billion, 35% percent higher than the 2012 figure, at a 44% higher average export price of NOK 39.7 per kg for fresh whole Atlantics. The fact that this increase was of a much greater magnitude than the 3.5% decrease in volumes, down to 960 000 tonnes, points to a significant strengthening of demand for Norwegian salmon. 

Norwegian exporters focused relatively more on the EU market in 2013, which accounted for around 68% of total export volume (651 000 tonnes) compared with 65% in 2012, and approximately the same proportions of total value. France is still the leading market for Norwegian salmon, representing 30% of volume and value, although it is now rivalled by Poland which has developed a large processing industry to cater mainly to the German market.

The removal of a penalty tariff on Norwegian fresh whole Atlantics in the USA, combined with good demand, saw US-destined exports rise 19% to a total of 19 200 tonnes, while the volume of exports to Russia and Asia decreased substantially. However, high prices meant an increase in total export values in almost every market.

Norwegian companies are cooperating with the NSC to promote Norwegian salmon in Asia. Exporters are hoping to take maximum advantage of the growth in salmon consumption, of which a major component is a growing interest in sushi cuisine from an expanding middle-class, urban consumer demographic.

According to Statistics Norway, in the first two months of 2014, the export price of fresh whole Atlantics from Norway was up 36% compared with 2013, while exported volume remained approximately flat. Export volumes (all salmon products) were down in all of the top three markets; by 11% to France, 12% to Poland and 19% to Russia. 

Trout

In line with the impressive performance of salmon on export markets, exports of Norwegian trout increased in 2013 by NOK 580 million to NOK 2.4 billion, while export volume remained approximately the same. This was due to the price of fresh whole trout increasing dramatically in 2013, by some 40% to NOK 41.5 per kg, which is even higher than that of fresh whole Atlantic salmon.

Russia is still the main market for Norwegian trout, taking some 47% of the total export volume and about the same proportion of value. However, major growth was posted in other markets in 2013. Belarus imported 49% more trout from Norway by volume, to 5 600 tonnes, and 105% more by value, to NOK 240 million. Meanwhile, Asian markets such as Japan, Thailand and China also grew substantially.  

Statistics Norway shows a 44% increase in the export price of trout from Norway in the first two months of 2014 compared with 2013, along with a 21% decrease in volume.

Chile

After the ISA virus crisis, sanitary conditions in the salmon sector in Chile seem to be improving with increased production efficiency and yields. 2013 proved a difficult year for farmers, with Atlantic salmon mortality reaching 15%. While treatments are now making an impact, this translates into an additional expense and less profitability for the sector. The coming months will be telling for 2014 mortality estimates and production predictions. 

Chilean salmonid exports for 2013 were up by 8% in volume and 21% in value in comparison with 2012. Chile was able to increase its exports to all markets in 2013, including Russia and the EU. The stable rise that salmon prices experienced internationally has had a positive effect in Chile as well, and gradually, the margins of the industry have reflected this positive trend. For Chilean exports, the price increase has mostly been driven by the high demand in the USA and by increased shipments to non-traditional markets in Latin America as well as Asia and Eastern Europe.

According to IFOP, throughout 2013, Atlantic salmon was the most exported species in Chile with a total of 305 000 tonnes shipped , valued at USD 2.3 billion, with an average FOB price of USD 7.5 per kg. These figures demonstrate a strong increase of 33% in volume and 59% increase in value when compared with 2012. Coho salmon followed Atlantic as the second most exported species, and though volume traded remained more or less stable at 111 200 tonnes, this was valued at USD 459 million, which is a 17% decrease in value compared with 2012. The average FOB price for coho for the year was USD 4.1 per kg. In the case of rainbow trout, exported volume for 2013 reached 110 500 tonnes, which is a 22% decrease in comparison with 2012. In terms of value, a 15% decline was registered.

Some experts and analysts have relatively low expectations for increased production in 2014. Approximate estimates are 730 000 tonnes of total salmonid harvest in 2014, and 810 000 tonnes for 2015.

UK

Similar to the Norwegian producers, UK producers are enjoying high prices, export revenues and margins. Production was approximately flat year-on-year, while a focus on exporting fresh whole Atlantics to the USA and Asian markets has paid off for UK exporters. Total export volume to China, Viet Nam, Taiwan PC, Japan and Hong Kong SAR was up 62% compared with 2012, while total value to the same group of countries increased by 78%. Minimal production growth is expected in the UK in 2014.

According to market research company Nielsen, a quarter of all consumer expenditure on seafood items in the 12 months up to Feb 1 2014 in the UK was on salmon, primarily fresh. This figure is an increase of 10.2% compared with the previous period. The strength of the UK market is reflected in trade statistics, particularly for fresh whole Atlantics from the Faroe Islands and Sweden, which make up an increasing proportion of the total import volume.

Ireland

In 2013, ongoing Irish salmon production was limited by biological challenges; continuing occurrence of amoebic gill parasites, noctiluca blooms and incidence of PD on some sites. Production was 9 100 tonnes WFE, worth EUR 56 million. Almost 100% of production goes to organic certification, with more than 90% sold as organic product, primarily HOG, followed by fillet and value-added.  80% or more of the total product is exported, with France, the UK and Germany the principal markets. Value per kilogram remains high at EUR 6.2 per kg. Six companies continue to operate 14 sea and 14 inland production units, using approximately 34 sea and 14 inland sites

Apart from recent biological issues and current challenging weather conditions curtailing production, limited capacity remains the biggest challenge to the sector’s development.  In addition, a relatively slow licensing process coupled with strong competition from other stakeholders and increased special areas of conservation designation for the same waters continues to make efforts to increase production capacity difficult.

Markets 

Economic forecasts for the Eurozone are for slow recovery of the major economies, which should boost consumer spending on more expensive proteins such as salmon. Meanwhile the USA is following a strongly upward demand trend, and the situation in Japan improved markedly towards the end of 2013. However, it is the emerging markets, mainly in Latin America and East and Southeast Asia, that are continuing to show the most rapid growth in line with increases of the major long-term drivers such as urbanization and expansion of the middle-class demographic. India remains a long-term target for the salmon industry, but has yet to show much sign of growth. Of the largest markets, Russia is currently the most uncertain. 

Russia

In the past decade, the Russian market has been characterized by growing salmon consumption. However, this trend is currently shifting as imports drop following the the rise in prices of Norwegian salmon and depreciation of the national currency. 

Since 1 January 2014, the RUB/USD exchange rate has declined by 11%, subsequently leading to the rise of import prices for Norwegian salmon in rubles. As a result, some Russian importers have been forced to halt their purchases of Norwegian salmon due to liquidity problems. Other companies with stronger capital have continued purchasing, albeit at decreased levels. It is possible that these larger companies will increase their market share in the near-term.

The falling volume of salmon from Norway has been partially replaced by salmon from Chile. Booming imports of Chilean salmon are largely explained by the combination of the lower competitive price and the decision to lift the duty exemption on fresh salmon imported for freezing purposes in Kaliningrad. Indeed, in 2013, Russia imported 63 700 tonnes of salmon and trout from Chile, which is 127% more than in the previous year. Coho salmon imports grew in particular, despite the increase in import price from USD 3.5 per kg in 2012 to USD 5 per kg in 2013. In April 2014, Atlantic salmon from Chile was priced at USD 8 per kg, coho salmon at USD 7 per kg and trout at USD 9 per kg.

The Russian salmon market is currently characterized by large volumes of frozen salmon in stocks and falling sales, resulting in Russian companies selling Norwegian salmon with losses. Analysts predict the further decline of salmon exports from Norway to Russia by 30 to 40% in 2014 compared with 2013 if the current salmon prices remain high (NOK 50 per kg) and if the ruble continues to weaken. However, if Norwegian salmon prices stay in the range of NOK 30–40 per kg, Russian imports of Norwegian salmon are predicted to recover.    

France   

The French market, the most important market for salmon in the EU, performed well in 2013. Volumes were slightly down, but these were absorbed by substantially higher prices. However, there are reports that retail prices are now negatively impacting demand somewhat. While price quotes for fresh salmon from supermarket chains closely follow import prices, French smokers saw their margins tightly squeezed by fresh salmon prices from Norway as contractually-supplied retailers were slower to pass prices onto consumers. Another interesting development on the French market in 2013 was an increase in the proportion of Chilean product on the market, although early indications are that this trend is likely to be reversed in 2014.

Germany  

German consumers appeared to respond better to high prices than their French counterparts in 2013. The increase in salmon consumption took place against a backdrop of decreasing general seafood consumption, providing strong evidence of the rising demand for salmon.  This is further reflected in the increase in both import volume and import value for 2013. However, it should be recognized that this is a market that is dominated by value-added products and large discount-retailers, delaying the transmission of raw material costs onto the consumer. Germany also substantially increased its imports from Chilean suppliers in 2013, mainly frozen fillets. 

Japan

Annual import figures for Japan in 2013 show an overall decrease both in total salmon imports and in prices. However, this is mainly due to weak demand in the first half of the year.  In the latter of the year, prices for both Chilean coho and sockeye from Russia and the USA began picking up, and this trend has continued into early 2014. Demand appears to be firming, but other likely contributing factors to the upward price trend are reduced production volumes, low inventories, strengthening yen and increased availability of larger fish from Chile in the latter half of the year. 

Outlook

The outlook for the salmon industry looks positive, although there is always the possibility of negative shocks due to the number of uncertainties. Unknowns include the ongoing situation in Ukraine, the short-term development of the Russian market, negative media coverage and the ever-present possibility of disease outbreak and feed price movement. Nevertheless, salmon prices are expected to remain high on the back of relatively slower production growth. Norway is now expected to reclaim its role in leading these production increases, with Chilean farmers  making concrete efforts to drastically reduce growth rates. While this is generally regarded as a step in the right direction, it remains to be seen whether it will indeed achieve the desired result of a reduction in mortalities, increase in production efficiency and improved profitability.

Market focus: salmon in China

In 2012, the Director for China in the Norwegian Seafood Council, Mr. Sigmund Bjørgo, predicted a future growth rate of 20% annually for fresh chilled salmon in China. In 2013, countries of origin for salmon sold in the Chinese markets ranged from Norway to Scotland, Denmark, Chile, with some volume coming from Canada, Australia and Ireland. After Norway, Chile has become the major supplying country. There is also a small volume of silver salmon and chum salmon from Alaska and Hokkaido. Large volumes of Pacific salmon imported from the USA and Russia are mainly for processing and re-export to the US and EU markets. 

Chinese consumers have little knowledge about salmon except that fresh salmon is more nutritious and suitable for consumption in its raw form. There is a general lack of official standards and knowledge in terms of varieties, preparation methods and criteria for freshness.

Imports of fresh chilled salmon were initiated with some promotional activities  launched in Beijing, Shanghai and Guangzhou some years ago. In the early stages of development, consumers could find Norwegian fresh chilled salmon only at special counters of supermarkets, buffet restaurants in hotels, or at Japanese restaurants. As the market developed, chain stores specializing in salmon were launched in South China. In 2013, consumers are increasingly buying salmon products through e-commerce, and target consumer groups include the young 20s to 30s demographic. The baby food market is also expected to grow in the future.

According to Oriental Ocean Sci-Tech Co., Ltd, one of the largest salmon farming companies in China with a production capacity of 1 000 tonnes a year, freshwater aquaculture species, namely rainbow trout and steelhead trout, are the main competitors to salmon in the Chinese market.